Chapter-1-ethics-business1.pptx

ETHICS and BUSINESS

“There are two educations. One should teach us how to make a living and the other how to live.”

-John T. Adams

Objectives: • Understand the nature of business from the moral perspective • Rationalize the importance of ethics in business • Apply the dynamics of moral reasoning as a framework for making ethical decisions in business • Examine the morality of profit-motive in business • Justify the need for ethical propriety in business and the corporate world

Business is part of human society. And since it is part of the complex web of interaction among institutions and people, its activities must be viewed and examined from the perspective of morality. Business without ethics threatens the survival of human society and in some cases, destroys the fiduciary relationships of people. The study of business ethics paves way for our common understanding of the fundamental concepts of what is right and wrong in our human conduct and its implications to business as an important human activity.

THE NATURE OF BUSINESS  For as long as people have needs and wants, there will always be business. Those who have capital will continue to produce and sell goods and services that will satisfy the needs and wants of customers.  Business is an activity that is part and parcel of human society. Society will not exist without business. Since business is an integral part of the society, its activities must be examined from the ethical perspective, in the same way that society examines politics, economics, government, culture and religion from the moral point of view.  The fundamental reason for examining the activities of business from the moral perspective is for the promotion of the common good, protection of the individual’s interests and the preservation of the human society in general.  Without ethics, business will be a chaotic human activity because there will be no common understanding and agreement about what is right and wrong human conduct.

THE NATURE OF BUSINESS BUSINESS is also a complex enterprise that involves major activities like purchasing, manufacturing, marketing, advertising, selling and accounting. BUSINESSMEN deal with suppliers, customers, workers, employees and even competitors.

THE NATURE OF BUSINESS Ironically, it is within this structure of interaction of people that a lot of questionable practices occur – misrepresentation, questionable pricing policies, false advertising, misbranding, lying, adulteration, under competition, and local price-cutting, among others. The bottom line is, somewhere, somehow people’s rights are being violated, their values disrespected and the interest of the common good disregarded. Business is a good human activity. However, it is the selfish motive and personal interest of unscrupulous businessmen that make business and in some instances, unproductive.

THE IMPORTANCE OF ETHICS IN BUSINESS The study of Business Ethics paves the way for a common ground in our understanding of the fundamental idea of what is good and what is bad in our human conduct. Without ethics, people especially businessmen, will set their own moral standards, moral rules and moral principles.

This would result into a kind of subjective morality, in which case, what is good for one may be bad for another and vice versa. With this subjective ethical paradigm, business people will consider some of their actions good but unacceptable to others, e.g., cheating the customers to gain profit may be acceptable to some businessmen but bad for others.

THE IMPORTANCE OF ETHICS IN BUSINESS Ethics as a science does not only evaluate the MORALITY of our human conduct but also provides us with a common understanding of the universal, objective and irreversible MORAL PRINCIPLES that should govern our human behaviour and guide our MORAL DECISIONS.

THE IMPORTANCE OF ETHICS IN BUSINESS Another important aspect in business that needs profound examination is the manner in which business leaders and managers confront ethical issues and problems affecting the flow and dynamism of business activities.

THE IMPORTANCE OF ETHICS IN BUSINESS Business Ethics opens a novel way of resolving moral problems and ethical dilemmas affecting business transactions and the interactions of people in the corporate world. The study of Business Ethics will also enhance the human and interpersonal skills of managers so they can be more effective in managing the human side of the organization.

THE BUSINESSMAN’S MYTH ABOUT BUSINESS ETHICS Businessmen are not immoral. And it would be disastrous to judge and conclude that business people commit unethical acts in doing business. Business, certainly is a good and productive human activity. However, it is the businessman’s wrong perception about the role that ethics plays in the world of business that affects his moral judgment and decision making.

Myth 1: Ethics Is a Personal Affair and Not a Public Debatable Matter Some businessmen claim that ethics is a private issue and not a public matter. In one sense, this is true because one’s concept of morality is a result of the environmental factors like religion, culture and family values that have had a great impact on the development of the ethical person. On the other hand, man is also a social being, which means he is always a being in relation with other men. To say, therefore, that ethics is a very subjective matter is a myopic view of our human nature.

Myth 1: Ethics Is a Personal Affair and Not a Public Debatable Matter If ethics is a subjective thing, then it will make morality very personal and relative, therefore, what i good for one person may be bad for another. And what is bad for one person may be good for another person. If one believes that lying is good, it does not necessarily mean that it is also good for other. If morality is subjective, people will make their own moral laws and principles and could be worse if they begin to impose these personal norms on others.

Myth 1: Ethics Is a Personal Affair and Not a Public Debatable Matter People are entitled to their own values and religious beliefs but in the exercise of these value systems, they must also consider the values and religious orientations of others. Certainly, our personal rights are always limited by the rights of others. The individual’s moral values may be very subjective but in the exercise of this value system, he must also consider the impact and gravity of his actions on others. Thus, ethics is not a personal affair but a public debatable matter.

Myth 2: Ethics and Business Do Not Mix Some businessmen claim that Ethics has no place at all in business. This view is most likely grounded on the assumption that business is an autonomous human activity where ethical standards do not exist and that businessmen are free to do what they want. To claim that business is an activity which is independent of morality is again a short-sighted view of the relationship between ethics and business.

Myth 2: Ethics and Business Do Not Mix Since business is part of human society and its activities operate within the structure of beliefs and value systems of people, it must also be viewed and examined from the perspective of ethics. Any business activity that is devoid of morality will bring more harm than good to people in particular, and the society in general. Furthermore, the belief that ethics does not mix with business will only justify illegal activities and will most likely promote questionable practices in business activity. Certainly, Ethics has an important place in business.

Myth 3: Ethics in Business Is Relative Akin to the view that ethics is a private and subjective matter is the claim that morality depends on the person himself and his environment. This is another wrong perception on the role that ethics plays in the world of business. Some businessmen claim that morality is relative, which means, the fundamental concepts of right and wrong depend on cultural and religious values of people. This implies further that what may be considered a right action in one country may be unacceptable in another country.

Myth 3: Ethics in Business Is Relative Abortion may be legal in Japan but certainly not in the Philippines. If morality is relative then what is good in one place may be evil on the other places, and vice versa. And if morality is viewed this way, then who’s going to tell us which actions are good and which actions are bad objectively? The truth of the matter is, there are universal moral principles that people share and agree upon regardless of religious orientations, cultural expressions and value systems.

Myth 3: Ethics in Business Is Relative And so, all peoples around the world believe that murder is always wrong, that stealing is always a bad action and bribery is always unacceptable. The study of Ethics paves way for our common understanding of the fundamental principles of right and wrong as reflected in our nature and conduct as human beings.

Myth 4: Good Business Means Good Ethics Some businessmen claim that good business means god ethics. This certainly is a myth. A business may be profitable but the means of acquiring profits may be questionable. Drugtrafficking is a profitable business and so is human smuggling and the like, but they certainly violate some rules and values of people. The study of Ethics in business encourage businessmen and managers to look closely into the end and the means of doing business. Profit maximization is good end in business but the means of getting those profits must also be examined. The end does not justify the means.

Myth 5: Business Is a War Some business leaders and businessmen believe that business is a war. For them, the market is an arena of gladiators trying to fight for survival and vying for the number one position. Because of this belief, businessmen often resort to using predatory tactics to destroy the competitors in order to emerge as the market leader. Business is a good human activity. And as an integral part of the society, it must promote healthy competition and not destroy the competitors.

THE RELATIONSHIP BETWEEN ETHICS AND BUSINESS Ethics plays an important role in business. Without morality, business will be a chaotic human activity. Ethics is not a study of positive laws intended to govern and regulate the actions of people doing business. The concern of ethics as a philosophical science is to discover that there are unwritten laws, written in the hearts of men that should govern our human conduct where positive laws may be absent, and in some cases, not very clear.

Significant Role that Ethics Plays in the World of Business 1. Business is an integral part of human society. Therefore, the actions of individuals and institutions in business must be subjected to moral rules and moral evaluation. 2. In business, as in any other human endeavor, “what is legal may not necessarily be moral. People tend to confuse legality with morality. An action may be legal but not necessarily moral. Example: capital punishment (death by lethal injection)

Significant Role that Ethics Plays in the World of Business 3. Laws are insufficient. They cannot cover all aspects of our human behaviour. Laws are sometimes absent or unclear in some areas of our human conduct. Ethics is the unwritten law, written in the hearts of men. In the absence of the law, Ethics will help us discern the correct conduct to follow based on the dictates of conscience and reason.

Significant Role that Ethics Plays in the World of Business 4. In today’s technocrat-oriented business education, the trend is to train managers to maximize profits by quantifying the operations of business. Certainly, the operations of business must be aided by quantitative instruments to measure and predict expected outcome. However, this is only one side of managing the enterprise. Managers and business leaders must also be prepared to respond to complex situations bearing ethical consequences.

Significant Role that Ethics Plays in the World of Business 5. Peter Drucker argues that “the business enterprise is an organ of society and its actions have a decisive impact on the social scene.” Drucker simply reminds us that a business corporation is not just created to make profits but also to consider its moral and social obligations to its stakeholders. Business organizations should not just look after their own interests but also the interest of the common good.

MORAL REASONING IN BUSINESS The essence of studying Business Ethics is to provide the manager as a decision maker with a framework for the resolution of moral issues and problems affecting business activities and the organization itself. Moral reasoning is a process in which ethical issues and problems are benchmarked against a moral standard so that a moral judgment is make possible. Since managers are tasked to solve problems of the organization and its related activities, it is also the responsibility of managers to help in the resolution, if not the prevention of moral issues that may have adverse effect to the operations of the business.

Framework of Moral Reasoning Ethical Issues / Problems

SITUATION ANALYSIS Examples: Graft Sexual Harassment Theft Bribery

REALITY CHECK

PROBLEM ANALYSIS -gravity of offense -frequency of offense -harm done -number of people affected -cost

Moral Norm Moral Standard Company Policy Ethical Principle

DECISION ANALYSIS -company rules / policies -ethical principles -codes of conduct -moral norms

Moral Judgment

RESOLUTION

-Moral or Immoral -Legal or Illegal

Characteristics of a Good Moral Standard 1. 2.

3.

4.

A good moral standard is one that looks at the issue as something that is very serious, e.g., murder, graft and corruption, stealing. A good standard must be grounded on good moral argument. A good argument is an argument that always tells the truth. A solid moral argument leaves no room for loopholes and counter arguments. A good standard should be objective and not subjective. It should be universally accepted and should apply to all. What is good for one people should be at the same time good for everybody. A good standard, when violated, brings about feelings of guilt, shame and remorse of conscience.

Requirements for a Good Moral Judgment 1. A good moral judgment must be logical. This means that the decision maker must arrive at an informed resolution of the issue based on logical reasoning. 2. A good moral judgment must be based on facts and solid evidence. The information used in the process of moral reasoning must not come form weak sources like hearsay, rumours and grapevine. 3. A good moral judgment must be based on sound and defensible moral principles. A weak ethical principle is open to a lot criticisms.

THE MORALITY OF PROFIT-MOTIVE People go into business for a number of reasons. Some go into business for personal satisfaction. Other are in business to earn a livelihood. Still others are in business because they want to serve the society through goods and services they offer to the customers. But the most common, if not the most dominant reason why people go into business, is to make a PROFIT. Business activity is unthinkable without profit as motive.

THE MORALITY OF PROFIT-MOTIVE Businessmen consider profit as a form of anticipated reward or a compensation for the efforts they spend, skills they apply and returns for the capital they invested in putting up and organizing the business. Traditionally, business people have looked at the profit motive as the most important aspect of business. The view of Milton Friedman, a noted economist, reflects this sentiments. He says that the “only responsibility of business is to make profit so long as one stays within the rules of the game and engages in open and free competition without deception or fraud.”

THE MORALITY OF PROFIT-MOTIVE Peter Drucker, an equally famous management guru on the other hand, disagrees with this view and says, “the primary responsibility of business is to look for customers and satisfy their needs and wants. Following this line of thinking, Drucker is simply hinting that, albeit, profit is an important aspect of business, there are other factors that the businessman must also consider in doing business such as: CUSTOMER SATISFACTION, QUALITY PRODUCTS, AFTER SALES POLICIES, FAIR AND REASONABLE PRICING.

The Assumptions of Profit-Motive Understanding the nature and morality of profit-motive starts with examination of some given factors and assumptions in which the idea of profit-motive operates. These factors are the following: 1. Profit-motive in business is an ethical issue. Since business is an integral part of society, its activities, including profitmaking, must be examined from the perspective of morality. However, in business, the concept of what is reasonable profit is still a subject of endless debates.

The Assumptions of Profit-Motive 2. Profit-motive as an ethical issue operates within the two important aspects of our human conduct – freedom and the structure of business. The element of freedom implies that businessmen have the right to decide on the amount of profit they want to earn in the process of selling goods and services to customers. The structure of business, on the other hand, is a tacit guideline that governs business activities including profit-making. Thus, any business activity is aimed at a monetary gain because that is part of the structure of business. The ultimate criterion therefore of gauging the success or failure of business is its ability to generate profits.

The Good and the Bad Sides of Profit-Motive Just like any other ethical issue, profit-motive has two sides – the good and the bad. A. The Good Side of Profit-Motive: 1. Profit-motive motivates people to do something meaningful, e.g., it gives human life a goal of pursue and something to live for. 2. Profit-motive promotes ingenuity and cleverness in running a business, e.g., business leaders and entrepreneurs have to struggle hard to overcome obstacles in order to achieve success.

The Good and the Bad Sides of Profit-Motive 3. Profit-motive makes people productive. Because of their desire for money, businessmen have become productive and some of their products have been useful and have enhanced the quality of human life. 4. Profit-motive generates potential capital for the business. Profit is potential capital, something that can be invested to establish new businesses. In this way, profit also results in more jobs and more goods and services for the public. The society as a whole thus benefits from the profit gained by a profit-oriented capitalist.

The Good and the Bad Sides of Profit-Motive B. The Good Side of Profit-Motive: 1. Profit-motive promotes rivalry among competitors. Sometimes the competition becomes so stiff that it results into a “dog-eat-dog” world of business where success is achieved by competing with others and pushing them down in order that one’s own business might succeed. This certainly dehumanizes business as an important human activity. 2. Profit-motive makes people focus only on making money, that is, to sell as many goods as possible without considering whether or not these products satisfy the needs and wants of consumers and end users.

The Good and the Bad Sides of Profit-Motive 3. Profit-motive turns businessman from being a reflective and a questioning person because he focuses his attention only on a practical activity of making money. Thus, a life centered on profit only results into a narrow view of existence, deficient in many important dimensions of human life. 4. Profit-motive promotes self-interest rather than the common good. It has, to some extent, benefited some businessmen but it has also created some social costs that many people, if not the majority, have to bear, e.g., depletion of the natural resources, toxic wastes being thrown into the rivers, pollution of the environment and disregard for the next generations to come.

Ethical Considerations of Profit-Motive in Business 1. Earning profit is a good and valid activity in business. Commercial activities will be absurd without the profit-motive. However, in the process of generating profit, an ethical discernment is required for the businessman: Is my profit fair enough for me and my customer? Did I consider important factors and parameters in making profit such as the costs of goods sold, overhead, mark-ups, profit margins and the like? 2. Making excessive profits is totally wrong. It leads to greed, avarice and manipulation of the customers.

Ethical Considerations of Profit-Motive in Business 3. Profit is not the “be-all and the end-all” of doing business. Certainly, there are other factors to be considered in business such as, customers’ satisfaction, respect for the environment, enhancement of the quality of life and preservation of the society. 4. The teachings of the Catholic Church do not totally condemn profit as part of business activity. Pope Pius XII, in Quadragesimo Anno (1931), does not prohibit the producer from enriching himself provided “one respects the laws of God, does not prejudice the rights of others, and works according to faith and right reason.”

THE CONCEPT OF MORAL RESPONSIBILITY In the story of creation, recounted in the third chapter of the book of Genesis (Gen. 3:1-13), the first man and woman committed an infraction against God’s commandments. As told in this particular story, Adam and Eve violated God’s commandment by eating the fruit of the Three of Knowledge. As a result of this infraction, both Adam and Eve tried to run away and hide themselves from God. When confronted about their disobedience, they tried to blame one another and eventually, also blamed the serpent. This short metaphorical story reflects man’s propensity to avoid accountability and responsibility for his bad or evil actions.

THE CONCEPT OF MORAL RESPONSIBILITY However, man is by nature a being and a creature who is supposed to be responsible and accountable for his actions. The reasons for this is twofold: 1) Man is rational being. This means he is cable of moral judgment. Further, this also means that man is thinking being, thus, he is aware of his intentions as well as the consequences of his actions. Man therefore, knows what he is doing because he is rational and a thinking creature. 2) Man is a free being. This means that he has the capacity to exercise his choices. This assumes that man is capable of choosing what is a good and a bad action for him.

THE CONCEPT OF MORAL RESPONSIBILITY These two assumptions provide the bases for giving praise, blame, reward and punishment for his actions. These assumptions likewise provide the reasons why we are held responsible for our actions. These assumptions, e.g., that we are thinking and a free being imply that we are capable of assuming responsibly for our actions.

Author: William H. Shaw Meanings of Moral Responsibility: 1. Moral Responsibility refers to holding to people morally accountable for some past action or actions. This simply means assigning to people blame or praise for particular actions that they have performed.

Author: William H. Shaw Meanings of Moral Responsibility: 2. Moral Responsibility also means care, welfare or treatment of others as derived from the specific social role that one plays in the society. Thus, parents are responsible for taking care of their children in the family, teachers are responsible for what occurs in their classrooms and doctors are responsible for the treatments of their hospital patients. In this second sense, moral responsibility implies a duty to be performed by a person depending on his role in the society.

Author: William H. Shaw Meanings of Moral Responsibility: 3. Moral Responsibility likewise to one’s capacity for making moral or rational decisions on his own. According to Shaw, if a person is not morally responsible in this third sense, he or she cannot be considered morally responsible in either of the other senses.

BUSINESS ETHICS DEFINED 1. Business Ethics is the study of what is the right and wrong human behaviour and conduct in business. 2. Business Ethics is a study of perceptions of people about morality, moral norms, moral rules and ethical principles as they apply to people and institutions in business. 3. Business Ethics is the study, evaluation, analysis and questioning of ethical standards, policies, moral norms, and ethical theories that managers and decision makers use in resolving moral issues and ethical dilemmas affecting business.

Thank you! 